Round table on the 16 of July "Launching the New Electricity Market: First Results and Challenges"

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Yesterday, on 16th of July, 2019, Ukraine Committee on Fuel and Energy Complex, Nuclear Policy and Nuclear Safety of the Verkhovna Rada held a round table entitled "Launching the New Electricity Market: First Results and Challenges".

The event was held under the chairmanship of Oleksandr Dombrovskyi with the participation of NEURC, the Ministry of Energy and Coal Industry, the EU Delegation to Ukraine, the USAID Energy Security Project, representatives of the electricity market entities, in particular, Ukrenergo, Energoatom, DTEK, Ukrhydroenergo, the Market Operator, the Guaranteed Buyer, the representative of the President of Ukraine in the government Andriy Gerus, EUEA, energy experts, non-government organizations.

The purpose of the round table was to discuss the first results of the introduction of the new electricity market from July 1, 2019, identifying deficiencies and gaps, unexpected factors and problems, and working out proposals for improving the legal relationship in this area.

All the participants of the discussion stressed that despite some of the existing problems listed below, the launch of the market was safe, the work of the Power System of Ukraine was not interrupted, such segments of the market as bilateral agreements, the day-ahead market (DAM) and the intraday market (IDM) has started working, the import of electricity was introduced.

Next, the round table participants stopped at price signals for 15 days of the market. At this stage of the market, the price for the consumers (not for the population) has increased. The final increase will be calculated in August. On average, according to market participants, the increase would be 25-30%. This increase was due to the increase in the tariff for the transfer of NPC Ukrenergo (due to new responsibilities of Ukrenergo in the new market, in particular, the PSO). Also, the price increase influences the balancing market (BM). Interim, it is necessary to regulate the work of the BM, as some participants go out with their applications to BM and sell their volumes of electricity there at an increased price, passing other segments of the market, said Andriy Gerus.

Representative of the EU Delegation to Ukraine, Dr. Johannes Baur, stopped at the fact that the new electricity market in Ukraine characterized by unusual complexity and fragmentation, which could affect its liquidity downwards and strengthen individual market players. Dr. Baur also noted that market participants in their price applications are guided by price caps rather than by the price of production. And stressed the urgent need for the Regulator's independence to perform its functions, in particular market control.

Vsevolod Kovalchuk, Chairman of the NPC "Ukrenergo", noted the increase in prices for consumers connected to the Ukrenergo networks, which could make the PSO mechanism worth revision. He noted the existing deficit of reserves for balancing through the non-launched market segment - the market of auxiliary services. The reason is the Order for check and trial electrical installations (power units) of producers who can provide auxiliary services has come into force on June 27, 2019 so no one has come through this procedure. Also Mr. Kovalchuk pointed out that due to commercial metering problems, the amount of imbalances can be estimated later.

President of SE "NNEGC Energoatom" Yurii Nedashkovsky noted among the problems the considerable debt of SE "Energorynok" to Energoatom, which continues to grow. He also drew attention to the fact that the mechanism of PSO allows Energoatom to operate in competitive segments of the market by only 10%, which worsens not only the work of the company, but also directly affects large consumers who are unable to conclude bilateral agreements with Energoatom and receive access to cheaper electricity.

DTEK CEO Maksym Timchenko told about the experience of DTEK in a new market and stressed that the results of the market can be estimated after 2-3 months of its work. Among the needs that require an urgent solution is the problem of debts, court decisions blocking the work of NPC Ukrenergo and NEURC and the issue of accelerating the synchronization with the ENTSO-E.

Director of the Market Operator Volodymyr Evdokimov noted the regular work of the DAM and IDM, noted that among the urgent tasks facing the enterprise is its transformation into a Joint Stock Company in accordance with the requirements of the law.

Director of the SE "Guaranteed Buyer" Konstantyn Petrikovets noted that the newly created company fulfills all the functions assigned to it, however, the suspension of the NEURC's decisions through their judicial appeal will significantly affect the activity of the enterprise due to the lack of a source of payment for producers of the electricity produced at the feed-in tariff.

Sukru Bogut, Senior Energy Advisor, USAID Energy Security Project, introduced a presentation of a "safe mode" of operation for a new market, including temporary price restrictions; restrictions for products on DAM (base, peak, day, weekly, quarterly, annual); additional rules for market participants, market operator and system operator. "Safe mode" operation is a transitional period after market opening to avoid price shocks. These restrictions will not hold up the competition or create barriers to market entry of qualified participants.  It is also proposed to review the PSO mechanism in order to establish a fair distribution of funds and reduce the price of electricity. One of the solution options is to move the compensation of the feed-in tariff from the tariff of NPS Ukrenergo to the Guaranteed Buyer.

The overwhelming majority of the participants mentioned the following issues as problematic:

- The lawsuits in the District Administrative Court of Kyiv that suspend the NEURC regulations №954 and №955 from 07.06.2019, which set the tariffs for Ukrenergo for electricity transmission and dispatch control services for the second half of 2019, will significantly affect the calculations in the electricity market in July and the related need to regulate the issue of electricity prices for large consumers such as metallurgical enterprises;

- Debt that continues to grow;

- Existing cross subsidy;

- The market of auxiliary services does not work due to the lack of certificated according to the new procedure suppliers of such services. At present, auxiliary services provided, for example, Ukrhydroenergo are not paid;

- Adjust the work of the balancing market;

- Need for revision the mechanism of the PSO;

- Commercial metering issues.

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